Yesterday, a monkey wrench was thrown into the DOJ’s ever-increasing, multi-jurisdictional cooperation in white collar cases. In United States v. Allen, the U.S. Court of Appeals for the Second Circuit held that the prohibition against the use and derivative use of a defendant’s compelled testimony – the Kastigar protections – applied even when the testimony was required by UK regulators in a joint U.S.- UK investigation. Despite prosecutors’ best efforts to avoid their investigation being tainted by statements compelled by UK regulators, the Second Circuit overturned a conviction and dismissed an indictment where a witness had reviewed the defendant’s compelled testimony. Thus, where multiple countries are investigating the same allegations of misconduct, a subject forced to provide evidence in a foreign country cannot have that testimony used in a prosecution against him in the United States – at least in the Second Circuit. Because common U.S. investigation partners, like the UK, regularly utilize compelled testimony in connection with their investigations, the DOJ now has to navigate a minefield when exchanging information with international partners.

Allen reversed the convictions of two LIBOR submitters charged with conspiracy and fraud for their role in the LIBOR rigging scandal. LIBOR, or London Interbank Offered Rate, is the benchmark interest rate many banks charge each other for short-term loans, calculated from submissions made by the banks themselves. During and after the financial crisis, regulators noticed that the LIBOR had failed to behave as expected. Subsequent investigation revealed that the LIBOR had been subject to manipulation through inaccurate submissions by various financial institutions and individuals either to aid the performance of bank trading books or to dispel concerns about the financial health of the institution.

The United States and the UK began their separate but cooperative investigations into LIBOR manipulation in or around 2010. Among the banks investigated was Rabobank, where Anthony Allen and Anthony Conti worked. Allen and Conti were indicted in the United States in October 2014 on charges of conspiracy to commit wire fraud and bank fraud and several substantive counts of wire fraud for allegedly adjusting LIBOR submissions so that the rate would be higher or lower on a given day to benefit Rabobank interest rate swaps traders. They were convicted on all counts and sentenced to prison. They raised several issues on appeal including whether the Fifth Amendment’s prohibition on the use of compelled testimony in American criminal proceedings applied when the testimony at issue had been compelled by a foreign sovereign.

The Fifth Amendment issue arose in connection with testimony offered at trial by a third Rabobank employee, Paul Robson. All three men had been under investigation by the UK’s Financial Conduct Authority. Per UK rules, Allen and Conti had been compelled to offer testimony in that investigation under a grant of a form of direct (but not derivative) use immunity. Under UK rules as a target of the FCA investigation, Robson had access to transcripts of the testimony provided by Allen and Conti and thoroughly reviewed them.

The DOJ and UK authorities decided that the DOJ would pursue the criminal case against Rabobank employees while the FCA stayed its enforcement action. After Robson was indicted, he entered into a cooperation agreement with the DOJ and subsequently pled guilty to LIBOR-related charges. In connection with his cooperation agreement, he testified before the grand jury and at their trial.

Allen and Conti challenged Robson’s testimony arguing that the government’s reliance on Robson as a cooperating witness was a violation of the Fifth Amendment and the Supreme Court’s decision in Kastigar that the government can only overcome a claim of Fifth Amendment privilege by granting a witness “use and derivative use” immunity. The defendants’ motion was denied by the trial court who held that, assuming Kastigar applied to testimony compelled by a foreign power, no Kastigar violation had occurred because the government was able to demonstrate that its evidence against Allen and Conti derived from sources independent of the compelled testimony given in the UK.

The Second Circuit reversed the convictions and granted dismissal of the indictment concluding that not only do the Fifth Amendment’s protections apply even when testimony is compelled by a foreign sovereign, but also that the full panoply of Kastigar protections apply. Thus, where evidence exists suggesting that a witness’s testimony changed subsequent to exposure to the defendants’ compelled testimony, the tainted witness’s “bare, generalized denial of taint” was insufficient overcome the prosecution’s burden of showing that the witness’s testimony was not tainted.

The implications of the decision are potentially far-reaching. In today’s interconnected world, DOJ prosecutors often work hand-in-hand with foreign governments on joint investigations probing everything from financial frauds like LIBOR and FX to suspected money laundering activities to violations of the Foreign Corrupt Practices Act. When foreign governments engage in questioning of potential suspects and compel those suspects to answer questions – as is permissible in many jurisdictions – DOJ prosecutors will have to establish procedures to ensure that the compelled testimony does not taint their case.

The Allen opinion demonstrates that avoiding such taint may be nearly impossible in many situations. Although the use of actual compelled statements can be avoided, witnesses, investigators, and prosecutors may be tainted by their exposure to information obtained in such a manner. Indeed, in Allen, the DOJ requested that the FCA not share any information from compelled interviews and explained the requirements of Kastigar to UK regulators. Yet, the UK’s complex rules allowed a potential witness who reviewed the compelled statements (and, through him, an FBI special agent) to be infected by the taint, which the DOJ was unable to cure.

The particular difficulty for the DOJ will be in not knowing during the investigation which individuals they may want to charge at the conclusion of the investigation. Thus, they will have to avoid the potential taint from any and all compelled interviews by partners abroad. Moreover, as the Allen case shows, the taint may be unavoidable where the foreign jurisdiction permits review of or otherwise publicizes the compelled statements. This far-reaching decision turns cross-border investigative partnerships into a minefield for U.S. prosecutors.

Partner: Morvillo Abramowitz Grand Iason & Anello P.C.
I have litigated in the federal and state courts for more than thirty years. My white collar practice involves representing defendants charged with a wide range of business crimes, regulatory and tax violations,...